Physical Asset Management For The Executive

Kathy | September 1, 2008

Looking for gold in your organization? Doing the right maintenance at the right time for the right reasons on the right equipment is a good way to find it.

In 1979, an MIT report estimated that $200 billion U.S. dollars were spent on the direct costs associated with reliability and maintenance (R&M). It also was estimated that over 14% of the 1979 Gross Domestic Product (GDP) was lost opportunity due to improper R&M practices. This level has continued to increase as a result of aging infrastructure and other reliability-based reasons, to over 20% of the U.S. GDP—or $2.5 trillion in lost business opportunity. This is greater than all but the top three economies of the world! Today, it is estimated that the R&M industry is approximately $1.2 trillion in size, with up to $750 billion being the direct cost of breakdown maintenance (reactive) or generally poor, incorrect or excessive practices.

The primary cause of the loss is that over 60% of maintenance programs are reactive, which includes those programs that were initiated and later failed due to ‘maintenance entropy,’ or collapsing successful programs where the significant paybacks are no longer seen. These days, over 90% of maintenance initiatives fail, 57% of CMMS applications fail and over 93% of motor management programs fail. The primary reason for this dismal state of affairs seems to be the result of the current business mindset, which calls for immediate improvements. The cold hard fact is that it normally takes 12 to 24 months for a supported program to take hold and begin to show results.

Proper R&M best practice processes have a direct impact on equipment availability, throughput capacity and spare inventories. In addition, the U.S. Department of Energy’s Industrial Technologies organization has stated that proper R&M can improve energy costs an average of 10 to 15%. For example, if we were to just maintain electric motors, alone, it would yield annual energy savings of up to 122 billion kWh and greenhouse gas emission reductions of over 74 Megatons. When expanded to all maintenance opportunities, the impact is significantly larger.

So, how to we do it? How do we get our arms around this monster known as R&M? It’s actually simpler than you might think. It just requires a little focus, an investment in time and support from the executive on down in the form of a corporate R&M strategy and local tactics.


Concept of a manageable maintenance program
In any sustainable program (refer to the program map in Fig. 1), you must start with knowing what you own. A program cannot be managed if no one knows what there is to manage. Everything must be surveyed and evaluated for its impact. The initial program must start out with a “pilot” area and the expansion of the program must be done in small chunks, as a majority of false starts occur when programs are initiated that take on too much. This process is referred to as the Facility Asset Census (FAC).

Once a census is completed, a Critical Equipment List (CEL) can be developed through selecting equipment based upon specific criteria that must include, at a minimum:

  1. Personnel Safety: If a system were to fail and involve personnel safety, it must be considered a critical system.
  2. Regulatory: If the impact involves regulatory issues such as the environmental systems, it must be considered a critical system.
  3. Production: Systems that impact production must be included. Some analysts will select production equipment based upon its impact on the overall production within a facility. The greater the impact, the higher the ranking. Most companies employ a three-level ranking system, but ranking systems as high as 10 levels are known to be used. Each level indicates the amount of attention the equipment receives.
  4. Cost Impact: If a system surpasses a repair or replacement value cost threshold, it should be considered. The average industrial value for consideration is $25,000.
  5. Other Impacts: Such things as working environment, marketing/sales considerations or other systems deemed important by the organization must be considered. This concept often is at odds with many RCM (Reliability-Centered Maintenance) and similar programs to the detriment of the program.



The next step is an Equipment Condition Assessment (ECA) where the condition of critical equipment is evaluated. The tests and inspections may be the ones selected for routine testing through maintenance practice development processes such as RCM. The results should be kept on record and equipment that is in poor condition should be scheduled for repair or replacement, at which time significant energy and reliability improvements can be considered.

As shown in Fig. 1, the ECA should be performed in parallel with a Preventive Maintenance Optimization (PMO) and development of Condition-Based Maintenance (CBM) practices. The PMO process can range from something as simple as a review of the existing processes to eliminate redundancies and outof- date Planned Maintenance (PM) to more advanced commercial PMO processes. In almost every case, from one-third to two-thirds of existing PM procedures can be eliminated or combined. The remaining PMs should be compared to the results of a CBM review involving processes such as RCM or a Maintenance Effectiveness Review (MER).

The MER will involve reviewing the existing testing that is being performed and comparing that to the failure rate and modes of the equipment being evaluated. If the failure rate and modes exist and are as high or higher than they were prior to the application of CBM, improvements to the programs should be considered. The process also involves the opportunity to decrease maintenance, as well as identify new inspections, tests or processes. MERs should be applied periodically—which equipment is included in the MER is generally selected by an experienced RCM analyst or reliability engineer.

Root-Cause-Analysis (RCA) procedures should be determined and personnel trained to ensure that basic RCA can be selected and used by all personnel—and more advanced processes can be used by teams with internal or external facilitation. In either case, all personnel should be made aware of the concepts and application of RCA so that when the process is necessary, the required evidence is maintained.

In addition to the selection of best practice procedures developed around the foregoing processes, other processbased best practices must be investigated and applied.

The impact of a warranty recovery strategy
The silent killer—and opportunity—within many maintenance programs is warranty recovery. With new equipment and repairs, most companies forget to investigate warranty opportunities in failed equipment. For instance, with electric motors, the average motor repair vendor warranty is one year with many repair shops increasing their competitive position by offering warranties as high as five years. New, premium-efficient electric motors have warranties that range from five to seven years.

Part of the reason that both new motor and repair facilities feel comfortable presenting these warranties is that many companies fail to track warranty opportunities. In a great number of facilities, the missed opportunities are not in the thousands of dollars, but actually in the hundreds of thousands or even millions. In one plant, returning sensors that failed during the warranty period saved tens of thousands—every quarter! Tracking warranty dates in CMMS programs or in third-party software can provide immediate impact on the overall maintenance program.

Planning and scheduling
R&M personnel are resources—just like any other corporate resource. It is crucial to optimize the utilization of these resources while still understanding that full utilization (wrench time or local efficiencies) is neither required nor reasonably possible. The concept of trying to control the efficiencies through such practices as scheduling more work than is possible and letting the workforce sort it out amounts to lazy management—but it’s one of the latest fads in industry. In reality, tools that allow proper maintenance process development, optimized workforce, full scheduling with a high rate of completion, ease of training and even the ability to plan for reactive maintenance are readily available.

Currently, the maintenance budget makes up an average of 40% of most operation budgets and the average “wrench time” tends to be in the 20-40% range. This means that per maintenance employee, an organization may be getting only an average of one to four hours of useful work per eight-hour shift. This is not a maintenance issue—it is a management issue that cannot be dealt with by simply laying off personnel.

Planning and scheduling tasks tend to be based upon fixed times in both the internal and contracted maintenance arena. This can lead to inefficient or ineffective use of resources and the decline of the maintenance department toward reactive maintenance, further reducing the efficiency of the program. There are a number of ways to not only ensure proper completion of maintenance tasks—both scheduled and reactive—but also to improve wrench time.

In the production and operations arena, there are a number of ways to schedule production for maximum efficiency. The method for getting the most out of the process is first to determine if the production method is a job shop, batch, assembly line or continuous flow. Once Operations has determined the type of process, scheduling can be performed using simple methods, with unknowns including suppliers and uptime. In fact, some planning methods review production and take into account reduced throughput due to improper maintenance without realizing it. Maintenance differs in that it can be a combination of several systems, as in the following, for example:

  1. Reactive Maintenance (RM): This is a job shop process wherein each repair and return to service is handled on a case-by-case basis.
  2. Preventive Maintenance (PM): Depending on the type of PM, this can be job shop, batch or assembly. and
  3. Predictive/Condition-Based Maintenance (PdM/CBM): These are generally batch or assembly with continuous monitoring falling under continuous flow.

Add in the variables of individual training, experience and aging workforce and it’s easy to see why planning and scheduling can become quite complex. Things can become even more complicated in situations where Production and Operations departments fail to turn over equipment for maintenance. As a result, many planning and scheduling philosophies take the easy way out by promoting the overscheduling of work. This type of approach leads to frustration on the part of the workforce from never being able to catch up on their daily workload. In turn, there tends to be a falling back on performance of activities in the exact amount of time outlined by the task, growing lethargy or even unnecessary overtime to meet PM task completion. In effect, each technician becomes a bottleneck in the maintenance system.

While a complete exercise in planning and scheduling is beyond the scope of this particular article, it is important to note that an effective system for doing so has been available for many decades. Many maintenance personnel with military experience already used this type of process. At the technician level, the maintenance person receives a card that has detailed, stepby- step directions, a list of all materials required, what qualifications are required to perform tasks, amount of time to perform the task and frequency of performance. One of the first things former military maintenance people notice when they enter the civilian maintenance community is the lack of detail in the programs. The result is multiple methods of performing the same task by different personnel. This costs a company an additional opportunity—when performing an RCA on a PM, or attempting to perform an MER, the lack of process often masks the root cause, or may even be the root cause.

Considerations in strategic development of an R&M program
One of the downfalls of most maintenance programs is the lack of a clearly defined corporate strategy. Most often, the “strategy” is presented in terms of “maintenance cost reduction,” which, unfortunately, doesn’t relate to any particular study or measure. For instance, a demand to reduce maintenance costs by 50% doesn’t make any sense if there has been no work to determine what level of maintenance is actually required to keep equipment at the needed level of capacity—or effectiveness.

The actual development of an R&M strategy requires the company to take a long, hard look at the condition of its assets. This look must extend from the capabilities of personnel to vendors, from parts and materials, to safety and regulatory requirements, to measures, to implementation. A company must have a clear-cut vision of what type of availability it is willing to invest in and the gap between present levels and the goal. Something else to consider is the effect of changes to maintenance practices—while some are immediate, most are seen over a long period of time. Any R&M strategy must be planned in the long term, with the negative effects of poor practices being cumulative over time.

Another common error is development of a strategy without input from those affected. A team attempting to develop an effective strategy should include the following individuals or representation of departments:

  • Senior management—not an appointee
  • R&M management
  • R&M technicians
  • Utility or energy management
  • Purchasing
  • Information technology
  • Operations management
  • MRO
  • Others, as necessary

Vendors should not be included in the development of the strategy. The strategic process should result in a corporate goal and vision that must be communicated—in detail. The next step is to require that managers and frontline supervisors develop tactics to implement and meet the strategy of the company.

Final thoughts
Through the recent era of cost-based management, our physical assets have degraded. That’s because the general goal has been to obtain the maximum from an asset without investing in that asset. Our maintenance organizations have been placed in a reactive mode that is not wholly the fault of corporate management. Fault also lies in the complacency of our workforce with only a few “rate-busters” really setting the pace.

The potential impact on the economy from better R&M programs throughout industry is staggering. The local impact, though, is no less dramatic. It includes:

  • Improvements in overall maintenance costs by an average of 24-30%
  • Elimination of unplanned breakdowns by 70-75%
  • Uptime improvements of 35-40%
  • Increase in throughput (capacity improvements) of 20-25%
  • PM elimination of 33-66%
  • Man-hour improvements of 45-50%
  • Decreased energy consumption and related greenhouse gas emissions by more than 10%

All of these benefits can come from the simple task of doing the right maintenance at the right time for the right reasons on the right equipment. MT

Howard W. Penrose, Ph.D., CMRP, president of SUCCESS by DESIGN® Reliability Services, has spent more than 25 years working in the R&M industry, from the shop floor, to academia and the military, to manufacturing. A three-time recipient of General Motors’ “People Make Quality Happen” award, he and his organization specialize in all aspects of reliability and maintenance, from facility to production to product. Among his many achievements, Penrose has authored 13 books, including, most recently, Physical Asset Management For The Executive: Caution Do Not Read This On An Airplane (on which this magazine article is based), and Electrical Motor Diagnostics: 2nd Edition. Telephone: (860) 577-8537; e-mail:






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